Innovation in the business of investing in India: An overview
While keeping aside a few thousand rupees from the monthly income was a regular habit, investing it for wealth management wasn’t a priority
Back in the day, it was common for our parents to rely on banking executives or a financial advisor, you know that family friend either an uncle or an aunty, to help them decide their investments. And the common investment suggestions were gold, real estate, fixed deposit, bonds, or pension schemes.
While keeping aside a few thousand rupees from the monthly income was a regular habit, investing it for wealth management wasn’t a priority. The lack of investment options, poor financial literacy, extensive paperwork, and limited access to investing firms were the top reasons.
Traditionally, wealth managers earned a nominal percentage of the investment amount as a commission. Now, if person A had ₹5,000 to invest and person B had ₹1,00,000 to invest, the wealth manager focused on advising the latter since there was a chance of earning a higher commission. As a result, a person with smaller savings had to wait until he accumulated a larger savings amount or invest in age-old investment products.
Additionally, assets like gold offered yearly returns of 2 per cent to 3 per cent, while inflation grew at 6 per cent. So, if you invested ₹500 in gold, at the end of a year, your wealth grew to ₹510, but inflation grew to ₹530. As a result, the value of your money is degraded.
To match the rate of inflation and manage wealth effectively, investors required better investment solutions. Fortunately, the scenario of the investing industry in India is rapidly changing, with technology and innovation leading the way forward.
New-age fintech firms disrupt the investment sector in India
Fintech startups are offering innovative, cost-effective services and enhanced customer experience to transform the way you invest. As more and more millennials join the investing wagon, here’s how the business of investing in India is changing.
Going digital and online
Traditionally, a lot of paperwork was involved in investing. But it is now simplified with apps and investing platforms digitising all paperwork, displaying product details on tabs, and providing customers with the tools to analyse their portfolio. As a result, there is more transparency, and it is easier for investors to monitor their investments.
Opportunity to start early and start small
Earlier, wealth management solutions involved high barriers to entry with an investor needing big-ticket investments. However, micro-investment platforms have fundamentally changed how the younger generation understands investments and simplified their entry into the investment ecosystem.
In fact, it is possible to start investing with as little as ₹500 per month. These platforms aim to help individuals realise the power of compounding and its impact on the amount of wealth one can generate by 60, provided they are consistent. Moreover, with offerings like spare change investing and daily deposits, these platforms encourage individuals to start early. The benefits of compounding increase dramatically if you are invested for long.
Moving away from traditional asset classes
When you plan to invest your savings, you are no longer limited to fixed deposits, gold, savings accounts etc. There are plenty of investment options for you to explore, including mutual funds, index mutual funds, commodities, structured debt, private equity, cryptocurrencies, exchange-traded funds, individual stocks, etc.
Wealth management firms and micro-investing platforms have moved beyond the run-of-the-mill to offer more sophisticated products. Investors can diversify their portfolios to fulfil financial goals.
Access to tools without a middleman
Increasing internet penetration and growing awareness have led to the birth of DIY platforms. The youth can invest and track their investments without interacting with an individual. They have complete control of their investment. Moreover, they can bring customisation as per requirement. The automated, algorithm-driven advisors evaluate the investor’s risk appetite, goals, and investment horizon to provide recommendations for asset allocation and portfolio management.
Five years ago, RBI’s report titled ‘Indian Household Finance Survey’ highlighted that 84% of India’s household wealth was held in real estate and other physical goods, 11 per cent in gold and the residual 5 per cent in financial assets. However, the scenario has changed as investors shift to financial savings from physical savings. During the financial year 2021-2022, the Demat account tally jumped 63% as per data provided by depositories. In uncertain times like these and emotional milestones, such as marriage, and parents’ retirement, more investors – both amateur and seasoned – are realising the value of investing. The new generation of investors is combining financial goals with ethical and life goals and searching for micro-investing options, bespoke offerings, and faster, more convenient, and seamless experiences.
The investing business in India is at the peak of a transformation. Its future looks bright, with micro-saving and micro-investing platforms giving investors the power to benefit from compounding returns and generating wealth for the fulfilment of financial goals.
The auhtor is founder and CEO of micro-investing and micro-savings app Deciml. Views are personal.
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